Thursday, October 16, 2008

Handling Emergencies

A number of people I know recently encountered a what I call a "full stop" life event. One family is dealing with a loss of a job (of the breadwinner) within the year. Another couple with a newborn is trying to manage with one parent in the hospital for a serious illness that may lead to a permanent disability.

As I empathize and offer support as best I can, I am also realizing that these event can happen to any of us and it tests the very foundation of our character, security and preparedness.

I am a big believer in learning from other peoples' examples. It is common for me to mentally place myself in the shoes of others and see what reaction I would have.

For the 2 events listed above, here's how I've responded.

Taking out discretionary spending (ie. travel), we would still have about a $2900/year left over, so not too bad. I am in an accelerated mortgage repayment plan. I would have a talk with my banker and get that changed if necessary. I would probably not do this unless the end of the emergency was really far away.

We have about 3 years worth of savings that can be mobilized. Should this happened when there was no mortgage to pay, then it would mean 6 years worth of savings and approximately $9500/year savings post expenses. As long as one of us is still working, there is no risk of losing our home or other properties. I would only consider using a HELOC or other lines of credit in an extreme emergency.

If both of us could not work anymore, that would point to some form of long term disability whereby we would have to calculate additional health expenses and liquidate assets accordingly. We have a small disability coverage.

In my experience in dealing with short and long term disability insurance for other people, I've learned that it may take a bit of time before any money come in. There can be a large amount of paperwork and depending on the health status, the person involved may not be in the condition to handle it properly or in a timely fashion.

This means a power of attorney for health and property is crucial. Also a review of medical and pharmaceutical benefits/coverage is in order.

In another post, I will describe how I handled a health emergency that resulted in me working part time for half a year.

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